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Fiscal Reforms during Fiscal Consolidation: The Case of Italy

Author

Listed:
  • Giampaolo Arachi
  • Valeria Bucci
  • Ernesto Longobardi
  • Paolo M. Panteghini
  • Maria Laura Parisi
  • Simone Pellegrino
  • Alberto Zanardi

Abstract

We discuss the strengths and weaknesses of the fiscal consolidation package adopted by Italy in 2011. Estimated at 3.3% of GDP, the tax measures were introduced to reduce public deficits without weakening the prospects of economic recovery or producing adverse redistributive outcomes. The tax reform mainly increases consumption and property taxes and gives relief for firms that recapitalize or hire young workers and women. To some extent, these measures are consistent with scholarly suggestions to foster short- and long-term economic growth by shifting the tax burden from capital and labor income towards consumption and property. Using microsimulation models, we evaluate the distributional and growth effects of the tax package. The indirect and property tax reforms are highly regressive, while the reform as a whole makes limited resources available for growth-enhancing policies, through a reduction in the effective corporate tax burden. We propose a revenue-neutral alternative reform that allows channeling more fiscal resources towards corporate tax relief, while at the same time producing less regressive distributional effects.

Suggested Citation

  • Giampaolo Arachi & Valeria Bucci & Ernesto Longobardi & Paolo M. Panteghini & Maria Laura Parisi & Simone Pellegrino & Alberto Zanardi, 2012. "Fiscal Reforms during Fiscal Consolidation: The Case of Italy," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 68(4), pages 445-465, December.
  • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(201212)68:4_445:frdfct_2.0.tx_2-l
    DOI: 10.1628/001522108X659574
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    References listed on IDEAS

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    Cited by:

    1. Simone Pellegrino & Guido Perboli & Giovanni Squillero, 2019. "Balancing the equity-efficiency trade-off in personal income taxation: an evolutionary approach," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 36(1), pages 37-64, April.
    2. Francesca Gastaldi & Paolo Liberati & Elena Pisano & Simone Tedeschi, 2014. "Progressivity-Improving VAT Reforms in Italy," Working papers 6, Società Italiana di Economia Pubblica.
    3. Cristina Cirillo & Lucia Imperioli & Marco Manzo, 2021. "The Value Added Tax Simulation Model: VATSIM-DF (II)," Working Papers wp2021-12, Ministry of Economy and Finance, Department of Finance.
    4. Kayis-Kumar, Ann, 2015. "Thin capitalisation rules: A second-best solution to the cross-border debt bias?," MPRA Paper 72031, University Library of Munich, Germany.
    5. M Luisa Maitino & Letizia Ravagli & Nicola Sciclone, 2017. "Microreg: A Traditional Tax-Benefit Microsimulation Model Extended To Indirect Taxes And In Kind Transfers," International Journal of Microsimulation, International Microsimulation Association, vol. 10(1), pages 5-38.
    6. Massimo Del Gatto & Fadi Hassan & Gianmarco I.P. Ottaviano & Fabiano Schivardi, 2019. "Company Profits in Italy," European Economy - Discussion Papers 2015 - 093, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.

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    More about this item

    Keywords

    tax reform; fiscal consolidation; microsimulation; Italy;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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